Chapter 10

Economics - Canadian Edition, 15e (Ragan)
Chapter 10 Monopoly, Cartels, and Price Discrimination
10.1 A Single-Price Monopolist
1) One similarity between a monopolist and a perfectly competitive firm is that both
A) are large relative to their markets.
B) may have similarly shaped cost curves.
C) choose the price at which to sell their product.
D) can make economic profits in the long run.
E) need to know the shape of the market demand curve.
Answer: B
Diff: 2
Topic: 10.1a. demand, price and revenue for a monopolist
Skill: Recall
Learning Obj.: 10-1 Explain why marginal revenue is less than price for a profit‐maximizing monopolist.
User2: Qualitative
2) The marginal revenue curve facing a single-price monopolist

A) is the same as the average revenue curve facing the monopolist.
B) is the same as the demand curve facing the monopolist.
C) shows the change in the profit for the firm.
D) lies below the average revenue curve.
E) at first falls to a minimum and then rises as output is increased.
Answer: D
Diff: 2
Skill: Recall
User2: Qualitative
3) The demand curve facing a single-price monopolist slopes downward because

A) its average revenue equals its marginal revenue.
B) its demand curve is the market demand curve, which is generally downward sloping.
C) demand is perfectly inelastic.
D) it sells typically to only one consumer.
E) its supply curve is upward sloping.
Answer: B
Diff: 1
Skill: Recall
User2: Qualitative
1
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4) A monopoly is distinguished from a firm operating under any other market structure in the following
way: the monopoly
A) charges a price higher than its average revenue.
B) can choose its output level.
C) can choose its level of cost.
D) does not produce at a profit-maximizing level of output.
E) faces a demand curve which is identical to the market demand curve.
Answer: E
Diff: 1
Skill: Recall
User2: Qualitative
5) A monopolistic firm faces a downward-sloping demand curve because

A) there are a large number of firms in the industry, all selling the same product.
B) the demand for its product is always inelastic.
C) the market price is affected by the amount sold by a monopolistic firm.
D) marginal revenue is negative throughout the feasible range of output.
E) the monopolistic firm can exploit economies of scale.
Answer: C
Diff: 1
Skill: Recall
User2: Qualitative
6) The average revenue curve for a single-price monopolist

A) is a horizontal line, equal to the price of its product.
B) lies below its demand curve.
C) coincides with its demand curve.
D) slopes upward to the right.
E) does not exist.
Answer: C
Diff: 1
Skill: Recall
User2: Qualitative
2
7) For a single-price monopolist, marginal revenue falls faster than price (as output rises) because
A) in order to sell additional units, the price must be lowered on all units.
B) profits are maximized when marginal cost equals marginal revenue.
C) the firm has no supply curve.
D) the cost of producing extra units of output increases as production is increased.
E) none of the above — marginal revenue does not fall faster than price.
Answer: A
Diff: 2
Skill: Recall
User2: Qualitative
8) Marginal revenue is less than price for a single-price monopolist because the
A) firm's output decisions do not affect the selling price.
B) firm must lower its price for all units if it wants to sell more of the product.
C) monopolist charges a price higher than the unit production cost.
D) monopolist must worry about how its price setting will lead to entry by other firms.
E) monopolist has achieved economies of scale.
Answer: B
Diff: 2
Skill: Recall
User2: Qualitative
3
Quantity
Price Demanded
$8 5
$7 6
$6 7
$5 8
$4 9
$3 10
$2 11
TABLE 10-1
9) Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated with increasing
sales from 5 to 6 units is
A) -4.
B) -2.
C) 0.
D) 2.
E) 4.
Answer: D
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
10) Refer to Table 10-1. For a single-price monopolist, the marginal revenue associated with increasing
sales from 6 to 7 units is
A) -4.
B) -2.
C) 0.
D) 2.
E) 4.
Answer: C
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
4
11) Refer to Table 10-1. For a single-price monopolist producing and selling 9 units, the marginal revenue
earned by selling the 9th unit is
A) -4.
B) -2.
C) 0.
D) 2.
E) 4.
Answer: A
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
12) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. At what level
of output is marginal revenue equal to 0?
A) between 6 and 7 units
B) between 7 and 8 units
C) between 8 and 9 units
D) between 9 and 10 units
E) between 10 and 11 units
Answer: A
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
of output is total revenue maximized for this firm?
Answer: A
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
5
14) Refer to Table 10-1, which displays the demand schedule for a single-price monopolist. Which of the
following statements about price elasticity of demand is true?
A) demand is unit-elastic at a price of $4
B) demand is elastic at a price of $8
C) demand is elastic at a price of $5
D) demand is inelastic at a price of $8
E) demand is elastic at a price of $3
Answer: B
Diff: 3
Skill: Applied
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of demand is the price elasticity of demand equal to 1?
Answer: A
Diff: 3
Skill: Applied
User1: Table
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6
The figure below shows the demand schedule and demand curve for a product produced by a single-price
monopolist.
FIGURE 10-1
16) Refer to Figure 10-1. Suppose this single-price monopolist is initially selling 5 units at $8 each and
then reduces the price of the product to $6. By making this change, the firm is giving up revenue of
________ on the original number of units sold and gaining revenue of ________ on the additional units
sold. Its marginal revenue is therefore ________. (All figures are dollars.)
A) 38; 40; 2
B) 8; 6; 2
C) 10; 12; 2
D) 14; 14; 0
E) 5; 7; -2
Answer: C
Diff: 3
Skill: Applied
User1: Graph
User2: Quantitative
17) Refer to Figure 10-1. Suppose this single-price monopolist is initially selling 9 units at $4 each and
then reduces the price of the product to $3. By making this change, the firm is giving up revenue of
________ on the original number of units sold and gaining revenue of ________ on the additional units
sold. Its marginal revenue is therefore ________. (All figures are dollars)
A) 40; 27; -13
B) 30; 36; 6
C) 34; 28; -6
D) 9; 3; -6
E) 3; 9; 6
Answer: D
Diff: 3
Skill: Applied
User1: Graph
7
User2: Quantitative
18) Refer to Figure 10-1. What is the level of output at which marginal revenue first becomes negative?
A) 5th unit
B) 6th unit
C) 7th unit
D) 8th unit
E) 9th unit
Answer: D
Diff: 2
Skill: Applied
User1: Graph
User2: Quantitative
19) If a single-price monopolist sets price where the price elasticity of demand exactly equals 1, its
A) total profits are at a maximum.
B) marginal revenue is always positive.
C) total revenue is rising, although marginal revenue is falling.
D) total revenue is falling.
E) total revenue is at its maximum.
Answer: E
Diff: 2
Skill: Applied
User2: Qualitative
20) Consider a profit-maximizing single-price monopolist that faces a linear demand curve. The firm sets
price where the price elasticity of demand is
A) zero.
B) less than one.
C) one.
D) greater than one.
E) infinite.
Answer: D
Diff: 3
Skill: Recall
User2: Qualitative
8
21) A monopolist faces a straight-line demand curve and is currently producing an output level of 2000
units receiving $10 000 in total revenue. At an output of 1000 units the marginal revenue for this firm
would be
A) 0.
B) $2.50.
C) $5.00.
D) $10.00.
E) Impossible to tell with the given information.
Answer: E
Diff: 3
Skill: Applied
User2: Quantitative
22) Consider a single-price monopolist that is operating in the inelastic range of its linear demand curve.
This firm
A) would be operating where its AR is negative.
B) would have a marginal revenue curve that is negative.
C) would have a marginal revenue that is negative although its total revenues would be at a maximum.
D) could raise its total revenue by lowering its price.
E) would be operating at its profit-maximizing position.
Answer: B
Diff: 2
Skill: Applied
User2: Qualitative
23) Consider a profit-maximizing single-price monopolist that faces a linear demand curve. The firm
would not set a price at which demand is inelastic because
A) marginal revenue is zero in that range of output.
B) average revenue is zero in that range of output.
C) the marginal revenue would be negative in that range of output.
D) the average revenue would be negative in that range of output.
E) the marginal revenue and average revenue would be equal in that range of output.
Answer: C
Diff: 2
Skill: Recall
User2: Quantitative
9
Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
24) Refer to Figure 10-2. The price elasticity of demand at Q2 is

A) zero.
B) greater than 1.
C) less than 1.
D) equal to 1.
E) not determinable from the diagram.
Answer: D
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative

A) zero.
B) less than 1.
C) equal to 1.
D) greater than 1.
Answer: D
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
10
The diagram below shows total revenue for a single-price monopolist.
FIGURE 10-3
26) Refer to Figure 10-3. The firm's marginal revenue at Q1 is

A) zero.
B) positive and rising.
C) positive but falling.
D) negative and falling.
Answer: C
Diff: 3
Skill: Applied
User1: Graph
User2: Qualitative

A) zero.
B) less than 1.
C) equal to 1.
D) greater than 1.
Answer: B
Diff: 3
Skill: Applied
User1: Graph
User2: Qualitative
11
The diagram below shows the demand curve facing a single-price monopolist.
FIGURE 10-4
28) Refer to Figure 10-4. Suppose the firm is currently producing at point A on the demand curve, selling
100 units of output at a price of $60 per unit. If the firm moves to point B, the revenue the firm gives up
on the units it was already selling is ________, and the revenue it gains on the additional units sold is
________.
A) $1000; $5000
B) $2000; $5000
C) $5000; $2000
D) $100; $200
E) $100; $500
Answer: A
Diff: 2
Skill: Applied
User1: Graph
User2: Quantitative
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29) Refer to Figure 10-4. What is the firm's marginal revenue per unit as it moves from point A to point B
on the demand curve?
A) $0
B) $40
C) $50
D) $1000
E) $2000
Answer: B
Diff: 3
Skill: Applied
User1: Graph
User2: Quantitative
30) Refer to Figure 10-4. Suppose the firm is currently at point C on the demand curve, selling 300 units at
$40 per unit. If the firm moves to point D, the revenue the firm gives up on the units it was already selling
is ________ and the revenue it gains on the additional units sold is ________.
A) $9000; $9000
B) $12 000; $12 000
C) $3000; 4000
D) $4000; $3000
E) $3000; $3000
Answer: E
Diff: 2
Skill: Applied
User1: Graph
User2: Quantitative
31) Refer to Figure 10-4. What is the firm's marginal revenue per unit as it moves from point C to point D
on the demand curve?
A) $0
B) $10
C) $50
D) $100
E) $3000
Answer: A
Diff: 3
Skill: Applied
User1: Graph
User2: Quantitative
13
32) Refer to Figure 10-4. At what level of quantity does the marginal revenue curve for this firm intersect
the horizontal axis?
A) 0
B) 250
C) 350
D) 500
E) 700
Answer: C
Diff: 3
Skill: Applied
User1: Graph
User2: Quantitative
Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
33) Refer to Figure 10-2. If marginal costs were zero, the profit-maximizing output for this single-price
monopolist would be
A) 0.
B) Q1.
C) Q2.
D) Q3.
E) Q4.
Answer: C
Diff: 2
Topic: 10.1b. profit maximization for a monopolist
Skill: Applied
User1: Graph
User2: Qualitative
14
34) Refer to Figure 10-2. If marginal costs were positive and constant but less than A, the profit-
maximizing output for this single-price monopolist would be
A) 0.
B) greater than zero, but less than Q1.
C) greater than zero, but less than Q2.
D) equal to Q2.
E) between Q2 and Q4.
Answer: C
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
35) Refer to Figure 10-2. For this single-price monopolist, the profit-maximizing level of output is
A) Q1.
B) Q2.
C) Q3.
D) Q4.
Answer: E
Diff: 1
Skill: Applied
User1: Graph
User2: Qualitative
36) If a single-price monopoly is presently producing an output at which marginal revenue is less than
marginal cost, it can increase its profits by
A) reducing output and raising prices.
B) reducing output and holding prices unchanged.
C) expanding output and lowering price.
D) expanding output and raising price.
E) reducing barriers to entry.
Answer: A
Diff: 2
Skill: Applied
User2: Qualitative
15
37) For a monopolist, the profit-maximizing level of output occurs where
A) MR = MC.
B) MR = AC.
C) MC = 0.
D) MC = AR.
E) MC = price.
Answer: A
Diff: 1
Skill: Recall
User2: Qualitative
38) A monopolist will be earning positive economic profits

A) at all times, since it controls the market.
B) when price equals marginal cost.
C) whenever marginal revenue equals marginal cost.
D) when price exceeds average total cost.
E) whenever marginal revenue is positive.
Answer: D
Diff: 1
Skill: Recall
User2: Qualitative
39) At the profit-maximizing level of output for a single-price monopolist, price

A) always exceeds average total cost.
B) equals marginal cost.
C) exceeds marginal cost.
D) equals marginal revenue.
E) is below marginal revenue.
Answer: C
Diff: 2
Skill: Applied
User2: Qualitative
40) Which of the following statements about single-price monopolists is correct?

A) The profit-maximizing level of output is the same as the total revenue-maximizing level of output.
B) The average revenue curve lies above the demand curve.
C) AR is greater than MR.
D) Price elasticity of demand will be equal to one if the firm is profit-maximizing.
E) Price equals marginal cost at the profit-maximizing level of output.
Answer: C
Diff: 2
Skill: Applied
User2: Qualitative
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41) Monopolistic firms do not have supply curves because
A) they are not constrained by the marginal costs of production.
B) their output is a fixed quantity.
C) monopolists get to choose their price-quantity combination along the demand curve.
D) monopolists face a given market price.
E) their marginal costs cannot be calculated.
Answer: C
Diff: 2
Skill: Recall
User2: Qualitative
42) A single-price monopolist is currently producing an output level where price equals marginal cost,
and profits are positive. In order to maximize profits, this monopolist should
A) produce zero output.
B) increase production and reduce price.
C) decrease production and increase price.
D) not change his output level, because he is currently earning profits.
E) reduce price and let production adjust to the new price.
Answer: C
Diff: 2
Skill: Applied
User2: Qualitative
43) If a single-price monopolist's price equals marginal cost, the firm

A) could increase its profits by lowering output and raising price.
B) should maintain its current price because it is a price taker.
C) will find it more profitable to produce a greater output.
D) is producing where MR = MC and thus is maximizing profits.
E) should definitely shut down.
Answer: A
Diff: 2
Skill: Applied
User2: Qualitative
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44) Suppose that a single-price monopolist calculates that at its present output, marginal revenue is $2
and marginal cost is $1. If the price of the product is $3, the monopolist could maximize its profits by
A) lowering price and raising output.
B) lowering price and leaving output unchanged.
C) raising price and leaving output unchanged.
D) doing nothing.
E) shutting down.
Answer: A
Diff: 2
Skill: Applied
User2: Quantitative
The diagram below shows total revenue for a single-price monopolist.
FIGURE 10-3
45) Refer to Figure 10-3. The profit-maximizing output for this single-price monopolist is
A) Q1
B) Q2.
C) Q3.
D) Q4.
Answer: E
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
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46) A single-price monopolist is currently producing an output level where P = $20, MR = $13, ATC = $15,
and MC = $14. In order to maximize profits, this monopolist should
B) increase production and reduce price.
D) not change the output level, because the firm is currently at the profit-maximizing output level.
E) There is insufficient information to make a recommendation.
Answer: C
Diff: 3
Skill: Applied
User2: Quantitative
47) A single-price monopolist is currently producing an output level where P = $320, MR = $260, ATC =
$280, and MC = $200. In order to maximize profits, this monopolist should
B) increase production and reduce price
D) not change the output level because the firm is currently at the profit-maximizing output level.
Answer: B
Diff: 3
Skill: Applied
User2: Quantitative
48) A single-price monopolist is currently producing an output level where P = $320, MR = $200, AVC =
$327, and MC = $200. In order to maximize profits, this firm should
A) increase production and reduce prices.
B) decrease production and increase prices.
C) not change its output level, because the firm is currently at its profit maximizing level.
D) produce zero output.
Answer: D
Diff: 3
Skill: Applied
User2: Quantitative
19
49) Economic profit for a monopolistic firm will equal zero when
A) average total cost is minimized.
B) marginal revenue equals marginal cost.
C) marginal revenue equals price.
D) price equals marginal cost.
E) average total cost equals price.
Answer: E
Diff: 2
Skill: Applied
User2: Qualitative
50) If a monopolist's marginal revenue is MR = 12 - 2Q and its marginal cost is MC = 3, then the profit-
maximizing quantity is
A) 0.
B) 4.
C) 4.5.
D) 6.
E) 12.
Answer: C
Diff: 2
Skill: Applied
User2: Quantitative
51) If a monopolist's marginal revenue is MR = 15 - 2Q and its marginal cost is MC = 5, then the profit-
maximizing quantity is
A) 0.
B) 5.
C) 7.5.
D) 10.
E) 15.
Answer: B
Diff: 2
Skill: Applied
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Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
52) Refer to Figure 10-5. A profit-maximizing single-price monopolist would produce the quantity
A) Q0.
B) Q1.
C) Q2.
D) Q3.
E) Q4.
Answer: A
Diff: 1
Skill: Recall
User1: Graph
User2: Qualitative
53) Refer to Figure 10-5. A profit-maximizing single-price monopolist would charge the price
A) P0.
B) P1.
C) P2.
D) P3.
E) P4.
Answer: E
Diff: 2
Skill: Recall
User1: Graph
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User2: Qualitative
54) Refer to Figure 10-5. The average per unit profit earned by this profit-maximizing single-price
monopolist is
A) P4 - P0.
B) P4 - P1.
C) P4 - P2.
D) P4 - P3.
E) P3 - P2.
Answer: C
Diff: 2
Skill: Applied
User1: Graph
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55) Refer to Figure 10-5. If the single-price monopolist is producing at the profit-maximizing level of
output, the total cost is represented by the area
A) 0P4aQ0.
B) 0P3cQ3.
C) 0P1dQ1.
D) 0P2bQ0.
E) 0P0gQ5.
Answer: D
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
56) Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of
output, the total revenue is represented by the area
A) 0P4aQ0.
B) 0P3cQ2.
C) 0P1dQ1.
D) 0P2bQ0.
E) 0P0gQ5.
Answer: A
Diff: 2
Skill: Applied
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output, the total profit is represented by the area
A) 0P4aQ0.
B) P4abP2.
C) P3ceP2.
D) 0P2bQ0.
E) 0P0fQ0.
Answer: B
Diff: 2
Skill: Applied
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output, consumer surplus is represented by the area
A) P5P2b.
B) P5P4a.
C) P5P0g.
D) P5P1e.
E) P5Q30.
Answer: B
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
59) Refer to Figure 10-5. This single-price monopolist would maximize total revenue by producing the
quantity
A) Q1.
B) Q2.
C) Q3.
D) Q4.
E) Q5.
Answer: C
Diff: 2
Skill: Recall
User1: Graph
User2: Qualitative
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60) Refer to Figure 10-5. Suppose this firm experiences an increase in the demand for its product. In the
short run, this profit-maximizing monopolist will
A) increase price and output.
B) increase price and produce the same output.
C) increase price and reduce output.
D) neither raise price nor change output.
E) lower price and increase output.
Answer: A
Diff: 2
Skill: Applied
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Your food-services company has been named as the monopoly provider of meals at a small university. The cost and
demand schedules are:
Total Total
Sold per Day Price per Meal Fixed Cost Variable Cost Total Revenue
0 $3.50 $150 $0 $0
100 $3.25 $150 $300 $325
200 $3.00 $150 $500 $600
300 $2.75 $150 $650 $825
400 $2.50 $150 $750 $1000
500 $2.25 $150 $830 $1125
600 $2.00 $150 $905 $1200
700 $1.75 $150 $995 $1225
TABLE 10-2
61) Refer to Table 10-2. The marginal cost between 100 and 200 meals per day is
A) $0.
B) $1.00.
C) $1.50.
D) $2.00.
E) $3.00.
Answer: D
Diff: 3
Skill: Applied
User1: Table
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62) Refer to Table 10-2. The marginal cost between 300 and 400 meals per day is
A) $0.
B) $1.00.
C) $1.50.
D) $2.00.
E) $3.00.
Answer: B
Diff: 3
Skill: Applied
User1: Table
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63) Refer to Table 10-2. Assuming the firm is a single-price monopolist, the marginal revenue between 100
and 200 meals per day is
A) $1.75.
B) $2.25.
C) $2.75.
D) $3.25.
E) $0.
Answer: C
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
64) Refer to Table 10-2. For a single-price monopolist, the profit-maximizing price and number of meals
per day is best approximated by
A) 650 meals at $1.87 per meal.
B) 550 meals at $2.12 per meal.
C) 450 meals at $2.37 per meal.
D) 350 meals at $2.62 per meal.
E) 250 meals at $2.87 per meal.
Answer: B
Diff: 3
Skill: Applied
User1: Table
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65) Refer to Table 10-2, and suppose that the firm is a single-price monopolist. At the profit-maximizing
level of output, the price elasticity of demand is
A) less than one.
B) one.
C) greater than one.
D) infinite.
E) impossible to know with the available information.
Answer: C
Diff: 3
Skill: Applied
User1: Table
User2: Quantitative
66) Refer to Table 10-2, and suppose that the firm is a single-price monopolist. If the firm provided 700
meals per day, total daily profits would be
A) -$60.
B) $80.
C) $150.
D) $230.
E) impossible to calculate given the information provided.
Answer: B
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
67) Refer to Table 10-2, and suppose that the firm is a single-price monopolist. The level of output at
which profits are zero is between
A) 0 and 100 meals.
B) 100 and 200 meals.
C) 200 and 300 meals.
D) 300 and 400 meals.
E) 300 and 500 meals.
Answer: C
Diff: 3
Skill: Applied
User1: Table
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68) Refer to Table 10-2. If the firm were to shut down in the short run its losses per day would be
A) zero.
B) $150.
C) equal to its average variable cost.
D) equal to its total revenue.
E) equal to its total cost.
Answer: B
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
69) Suppose that a single-price monopolist knows the following information:
Price Quantity TR MR Fixed Cost TC ATC MC

$10.00 1500 $7.00 $6000 $5.00 $5.00
The monopolist could maximize profits by

A) staying at the current price and output.
B) lowering price and increasing output.
C) lowering price and leaving output unchanged.
D) raising price and leaving output unchanged.
E) producing zero output.
Answer: B
Diff: 3
Skill: Applied
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$10.00 1500 $7.00 $6000 $5.00 $5.00
The total profit being earned by this firm at the current level of output is ________ which ________ the
maximum profit possible.
A) $3000; is not
B) $7500; is not
C) $15 000; is
D) $97 500; is not
E) $105 000; is
Answer: B
Diff: 3
Skill: Applied
User1: Table
User2: Quantitative

$9.00 1500 $4.00 $7000 $7.00 $5.00
The monopolist could maximize its profits by

D) raising price and lowering output.
E) producing zero output.
Answer: D
Diff: 3
Skill: Applied
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$9.00 1500 $4.00 $7000 $7.00 $5.00
The total profit being earned by this firm at the current level of output is
A) $1500.
B) $3000.
C) $6500.
D) $10 500.
E) $13 500.
Answer: B
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative

$5.00 2000 $4.00 $2000 $5.00 $3.00
The monopolist could maximize profits in the short run by

D) raising price and lowering output.
E) shutting down.
Answer: B
Diff: 3
Skill: Applied
User2: Quantitative
29

$5.00 2000 $4.00 $2000 $5.00 $3.00
The total profit being earned by this firm at the current level of output is
A) -$2000.
B) -$1000.
C) 0.
D) $1000.
E) $2000.
Answer: C
Diff: 2
Skill: Applied
User1: Table
User2: Quantitative
75) Which of the following statements describes a major difference between monopoly and perfect
competition?
A) Perfectly competitive firms cannot maintain positive economic profits in the long run, whereas
monopolists can.
B) Monopolists do not consider consumer demand when choosing price and output levels.
C) Monopolistic firms tend to maximize revenue while perfectly competitive firms maximize profit.
D) Monopolistic firms emphasize cost minimization whereas perfectly competitive firms emphasize profit
maximization.
E) Perfectly competitive firms can never earn economic profits; monopolistic firms always earn economic
profits.
Answer: A
Diff: 1
Skill: Recall
User2: Qualitative
76) Which one of the following is a natural barrier to firms entering an industry?
A) decreasing returns to scale
B) a positively sloped LRAC curve over the whole range of output
C) a negatively sloped LRAC curve over the whole range of output
D) threats of punitive price-cutting by existing producers
E) licensing and patent restrictions
Answer: C
Diff: 1
Topic: 10.1c. entry barriers
Skill: Recall
Learning Obj.: 10-2 Understand how entry barriers can allow monopolists to maintain positive profits in the long
run.
User2: Qualitative
30
77) Natural barriers to firms to entering an industry include
A) control or ownership of the entire supply of an essential raw material.
B) large economies of scale in the industry.
C) a government-awarded franchise.
D) a patent which allows production by only the patent holder.
E) increasing-cost production.
Answer: B
Diff: 2
Skill: Recall
run.
User2: Qualitative
78) A likely cause of a natural monopoly occurring in some industry is

A) scale economies.
B) patents.
C) licenses.
D) charters.
E) sabotage.
Answer: A
Diff: 1
Skill: Recall
run.
User2: Qualitative
79) If an industry's demand conditions allow at most one firm to cover its costs while producing at its
minimum efficient scale (MES), this situation is known as
A) a discriminating monopoly.
B) a natural monopoly.
C) declining marginal revenue.
D) limited competition.
E) natural economic limits.
Answer: B
Diff: 1
Skill: Recall
run.
User2: Qualitative
31
80) Suppose the technology of an industry is such that the typical firm's minimum efficient scale is 8000
units per month at an average long-run cost of $5 per unit. If the total quantity demanded at a price of $5
per unit is 8500 units per month, the likely result would be
A) a cartel.
B) a concentrated oligopoly.
C) a natural monopoly.
D) price discrimination.
E) perfectly competitive firms.
Answer: C
Diff: 2
Skill: Applied
run.
User2: Qualitative
81) Suppose the technology of an industry is such that the typical firm's minimum efficient scale is 18
units per day at an average long-run cost of $1600 per unit. If the total quantity demanded at a price of
$1750 per unit is 16 units per month, the likely result would be
A) a competitive industry.
B) a cartel.
C) price discrimination.
D) a natural monopoly.
E) a concentrated oligopoly.
Answer: D
Diff: 3
Skill: Applied
run.
User2: Quantitative
82) Suppose the technology of production is such that the typical firm's minimum efficient scale is 1400
units per week at an average long-run cost of $9 per unit. If the total quantity demanded in this market at
a price of $9 per unit is 22 million units per week, the likely result will be
A) a cartel.
B) price discrimination.
C) a natural monopoly.
D) a concentrated oligopoly.
E) a competitive industry.
Answer: E
Diff: 2
Skill: Applied
run.
User2: Qualitative
32
83) If a competing firm is able to overcome an entry barrier of a monopolized industry, the demand curve
of the single firm already in the industry will
A) shift to the right.
B) remain the same in spite of the entry of the other firm.
C) shift to the left.
D) become less elastic.
E) shift to the left and become more elastic.
Answer: E
Diff: 2
Skill: Applied
run.
User2: Qualitative
84) A firm is best described as a natural monopoly if

A) there are no competing firms.
B) it holds an exclusive charter from the government.
C) its ATC curve is upward sloping.
D) its MC curve is downward sloping.
E) it can supply the entire market while minimizing its average costs.
Answer: E
Diff: 1
Skill: Recall
run.
User2: Qualitative
85) The main argument of Joseph Schumpeter's idea of "creative destruction" is that
A) the existence of monopolies leads to destruction of the environment.
B) short-run profits created by the existence of monopolies will lead to antitrust legislation, which will
force the fragmentation of monopolies into competitive industries.
C) perfectly competitive industries are characterized by more productive innovation and productivity
growth than monopolistic industries, which Schumpeter regarded as destructive.
D) monopoly profits lead to innovation in an effort to sustain those profits.
E) monopolies create profits for themselves at the expense of the destruction of consumer surplus.
Answer: D
Diff: 2
Topic: 10.1d. innovation and creative destruction
Skill: Recall
run.
User2: Qualitative
33
10.2 Cartels and Monopoly Power
1) A number of firms agreeing together to restrict output and thereby raise prices is known as
A) a monopoly.
B) a natural monopoly.
C) a cartel.
D) a barrier to entry.
E) an oligopoly.
Answer: C
Diff: 1
Topic: 10.2. cartels
Skill: Recall
Learning Obj.: 10-3 Describe why firms would form a cartel to restrict industry output and how this would increase
their profits.
User2: Qualitative
2) The cartelization of an industry with a homogeneous product usually means that

A) member firms have agreed to cooperate in reducing costs.
B) member firms have agreed to reduce their joint output.
C) the demand curve facing the industry must be linear.
D) the demand curve facing the industry must be elastic.
E) member firms have agreed to reduce investment.
Answer: B
Diff: 1
Skill: Recall
their profits.
User2: Qualitative
3) One of the reasons cartels are considered unstable is that

A) member firms reduce their investment, thereby becoming uncompetitive over time.
B) it is inefficient to manage individual firms collectively.
C) there are wide fluctuations in price as cartel members vary their output.
D) consumers seek out substitutes to the cartel product.
E) individual members of the cartel have an incentive to violate the cartel agreement.
Answer: E
Diff: 1
Skill: Recall
their profits.
User2: Qualitative
34
4) The two characteristic problems for cartels are
A) agreeing on the price to be set and preventing new entrants.
B) policing members' output restrictions and preventing new entrants.
C) coordinating marketing policies and policing members' quotas.
D) agreeing on the price to be set and coordinating marketing policies.
E) policing members' prices and restricting output.
Answer: B
Diff: 2
Skill: Recall
their profits.
User2: Qualitative
5) It is common for a cartel to collapse when one or more firms in the cartel
A) exceed its output quota.
B) produce more efficiently than other member firms.
C) is much larger than other cartel members.
D) increase its price above the monopoly price.
E) exit the industry.
Answer: A
Diff: 1
Skill: Applied
their profits.
User2: Qualitative
6) A cartel can only succeed in the long run

A) with authorization from the government.
B) if there is free entry of new firms.
C) if all firms are experiencing decreasing returns to scale.
D) if the long-run market supply curve is elastic.
E) if member firms cooperate and resist their individual incentives.
Answer: E
Diff: 2
Skill: Recall
their profits.
User2: Qualitative
35
7) Suppose all of the firms in a perfectly competitive industry form a cartel and agree to restrict output,
thereby raising the price of the product. Individual Firm A will gain the most from the existence of the
cartel if
A) all firms, including A, cooperate and restrict output.
B) Firm A restricts output, while the other firms do not.
C) all firms, except Firm A, cooperate and restrict output.
D) no firms restrict output.
E) all firms revert back to their competitive outputs.
Answer: C
Diff: 2
Skill: Applied
their profits.
User2: Qualitative
8) In November 2012, there was some discussion of several south-Asian countries joining together to
restrict the supply of rice to the world market. Between them, these countries' exports of rice account for
40% of the total global trade. What would they be trying to accomplish?
A) They are attempting to form a cartel, increase their joint output, and control a larger percentage of the
total global trade.
B) They are attempting to price discriminate between consumers of their exported rice, thereby increasing
their share of the global trade and increasing their joint profits.
C) They are attempting to form a cartel, jointly restrict output, and increase the world price of rice.
D) They are attempting to act as a bloc to restrict entry of new producers to the world market, and
thereby protect their joint profits.
E) They are attempting to form a cartel, drive other producers out of the world market and then increase
their output of rice.
Answer: C
Diff: 3
Skill: Applied
their profits.
User2: Qualitative
36
10.3 Price Discrimination
Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
1) Refer to Figure 10-5. In order to maximize its profits, a perfect-price-discriminating monopolist

produces the quantity
A) Q0.
B) Q1.
C) Q2.
D) Q3.
E) Q4.
Answer: C
Diff: 2
Topic: 10.3. price discrimination
Skill: Recall
Learning Obj.: 10-4 Explain how some firms can increase their profits through price discrimination.
User1: Graph
User2: Qualitative
37
2) Refer to Figure 10-5. If the monopolist is practicing perfect price discrimination and is maximizing its
profits, the total revenue is represented by the area
A) 0P4aQ0.
B) 0P5cQ2.
C) 0P1dQ1.
D) 0P2bQ0.
E) 0P3cQ2.
Answer: B
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
3) Refer to Figure 10-5. If the monopolist is practicing perfect price discrimination and is maximizing its
profits, the consumer surplus is represented by the area
A) P5P3c.
B) P5P4a.
C) P5P0c.
D) P5P2e.
E) There is no consumer surplus in this case.
Answer: E
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
4) Refer to Figure 10-5. Suppose this monopolist is practicing perfect price discrimination. How does this
differ from the situation where this firm is charging a single price for its product?
A) The firm is producing the same quantity, has successfully identified different segments of the market,
and is able to capture some of the consumer surplus.
B) The firm is restricting output to a level below that of the single-price monopolist, and thereby raises
the price of its product and earns higher profits.
C) The firm is producing a smaller quantity, is charging a different price for each unit sold and is earning
higher profits.
D) The firm is producing the same quantity, but charging a different price for each unit sold and is
earning higher profits.
E) The firm is producing a higher quantity, is charging a different price for each unit sold and is earning
higher profits.
Answer: E
Diff: 3
Skill: Recall
User2: Qualitative
38
5) Relative to a firm that must charge a single price for all of its output, the ability to charge multiple
prices gives a firm with market power the ability to capture some or all of the
A) producer surplus.
B) consumer surplus.
C) fixed costs.
D) variable costs.
E) marginal costs.
Answer: B
Diff: 1
Skill: Recall
User2: Qualitative
6) Price discrimination, if possible, allows a price-setting firm to increase its profits by

A) shifting its cost curves downward.
B) raising the price above the competitive price.
C) charging different prices according to the willingness to pay of each consumer.
D) reducing costs through a reduction in output.
E) charging different prices according to the different marginal cost on each unit.
Answer: C
Diff: 2
Skill: Recall
User2: Qualitative
7) Suppose the market for some product can be divided into two segments, each with a linear demand
curve. A monopolist can set a different price (but only one price) in each segment. The profit-maximizing
price discrimination across these two market segments will lead to
A) higher output with average revenue higher than the best single price.
B) lower output with total revenue higher than the single best price.
C) lower output with a higher average revenue than the best single price.
D) higher output with average revenue lower than the best single price.
E) the same output but higher average revenue than the best single price.
Answer: E
Diff: 3
Skill: Applied
User2: Qualitative
39
8) One reason movie theatres charge a lower admission price to senior citizens is that
A) movie-theatre owners are able to practice perfect price discrimination.
B) government sets the price policies.
C) senior citizens have a more elastic demand than other movie-goers.
D) senior citizens have a less elastic demand than other movie-goers.
E) senior citizens have a higher willingness-to-pay than other people.
Answer: C
Diff: 2
Skill: Applied
User2: Qualitative
9) Which one of the following cases is NOT an example of price discrimination?

A) Airlines charge different fares for business people than tourist travelers.
B) Young males are charged higher premiums for car insurance than older males or women.
C) A local phone company charges different telephone rates to residential and business users.
D) Electric companies charge different rates to commercial and residential users for electricity.
E) Theatres charge different rates for different age groups.
Answer: B
Diff: 3
Skill: Applied
User2: Qualitative
10) Which of the following is probably NOT an example of price discrimination?

A) A doctor charging for his services according to the income of his patients.
B) Train fares that are less expensive for weekend travel than weekday travel.
C) A theatre charging children under 12 less for a movie ticket than it charges an adult.
D) Universities charging out-of-province students higher tuition fees.
E) A supermarket charging more for strawberries in December than in June.
Answer: E
Diff: 2
Skill: Applied
User2: Qualitative
40
11) Which of the following statements about a monopoly practicing perfect price discrimination is
correct?
A) The profit-maximizing criterion is MR = P, the same as for perfect competition.
B) The demand curve is also the marginal-revenue curve.
C) It will charge higher prices in those market segments with more elastic demand.
D) The output will always be less than that produced by a single-price monopolist.
E) Total costs will be lower than that of a single-price monopolist.
Answer: B
Diff: 3
Skill: Recall
User2: Qualitative
12) If a monopolist is practicing perfect price discrimination, then the following equation is true:
A) MR = P for all units.
B) MR = 1/2 P for any unit.
C) AR = ATC at the profit-maximizing level of output.
D) MC = 1/2 MR at the profit-maximizing level of output.
E) P = AVC at the profit-maximizing level of output.
Answer: A
Diff: 3
Skill: Applied
User2: Qualitative
13) If a monopolist is practicing perfect price discrimination, then

A) the producer surplus is zero.
B) consumer surplus is zero.
C) costs are lower than for the non-price-discriminating monopolist.
D) demand must be inelastic.
E) the monopolist is not profit maximizing.
Answer: B
Diff: 2
Skill: Applied
User2: Qualitative
41
14) Which of the following products would most easily lend itself to successful price discrimination by a
monopolist?
A) cellular phones
B) electricity
C) pianos
D) restaurant meals
E) transport trucks
Answer: B
Diff: 2
Skill: Applied
User2: Qualitative
15) If a monopolist is practising perfect price discrimination, we know that

A) the firm is facing a perfectly elastic demand curve.
B) the firm is facing a perfectly inelastic demand curve.
C) marginal cost is rising as output rises.
D) the firm is producing a lower output than it would if it were a single-price monopolist.
E) the firm is selling each unit at a different price and capturing all consumer surplus.
Answer: E
Diff: 2
Skill: Recall
User2: Qualitative
16) One reason airlines charge a higher price to business travellers is that
A) business travellers don't profit maximize.
B) government sets the price policies.
C) business travellers have a relatively higher demand elasticity than other travellers.
D) business travellers have a relatively lower demand elasticity than other travellers.
E) they are thereby able to minimize costs.
Answer: D
Diff: 2
Skill: Applied
User2: Qualitative
42
The diagram below shows the demand curve and marginal cost and marginal revenue curves for a new heart
medication for which the pharmaceutical firm holds a 20-year patent on its production and sales. This protection
gives the firm monopoly power for the 20 years of the patent.
FIGURE 10-6
17) Refer to Figure 10-6. Assume this pharmaceutical firm charges a single price for its drug. At its profit-
maximizing level of output it will produce
A) Q0 units and charge the perfectly competitive price.
B) Q0 units and charge a price of p0.
C) Q1 units and charge a price of p1.
D) Q0 units and charge a price of p2.
E) Q1 units and charge a price greater than its average total variable cost.
Answer: B
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
43
maximizing level of output, consumer surplus is represented by
A) areas H + I.
B) areas C + D + E + F.
C) areas D + E.
D) There is no consumer surplus generated.
E) It is not possible to determine with the information provided.
Answer: C
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
maximizing level of output, it will generate a total profit represented by
A) the sum of areas A through K.
B) areas A + B + C + F + G.
C) areas B + C + F + G + H + I.
D) areas D + E.
Answer: E
Diff: 3
Skill: Applied
User1: Graph
User2: Qualitative
20) Refer to Figure 10-6. Assume this pharmaceutical firm is practicing perfect price discrimination
among its buyers. At its profit-maximizing level of output it will produce
A) Q1 units and charge a price of p1 on the last unit sold.
B) Q1 units and charge a price of p1 on all units.
C) Q0 units and charge a price of p0 on the last unit sold.
D) Q0 units and charge a price of p0 on all units.
Answer: A
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
44
among its buyers. At its profit-maximizing level of output, consumer surplus is represented by
A) areas C + D + E + F + H.
B) areas D + E.
C) areas C + F + H.
D) There is no consumer surplus.
Answer: D
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
maximizing level of output, it will generate a deadweight loss to society represented by
A) areas H + I.
B) areas H + I + J + K.
C) areas I + J + K.
D) There is no deadweight loss generated.
Answer: A
Diff: 3
Skill: Applied
User1: Graph
User2: Qualitative
among its buyers. At its profit-maximizing level of output, it will generate a deadweight loss to society
represented by
A) areas H + I.
B) areas H + I + J + K.
C) areas I + J + K.
D) There is no deadweight loss generated.
Answer: D
Diff: 3
Skill: Applied
User1: Graph
User2: Qualitative
45
24) Refer to Figure 10-6. Assume this pharmaceutical firm has no fixed costs and is practicing perfect
price discrimination among its buyers. At its profit-maximizing level of output, it will generate a total
profit represented by
A) areas B + C + F + G + H + I.
B) areas C + F + H.
C) areas G + I.
D) the area below the demand curve minus the area below the MC curve, up to Q 1.
Answer: D
Diff: 3
Skill: Applied
User1: Graph
User2: Qualitative
25) Refer to Figure 10-6. Suppose this pharmaceutical firm is charging a single price for its drug and is
maximizing its profits. If it then begins to perfectly price discriminate among its buyers it will
A) cause a loss of economic surplus to society as a whole.
B) capture consumer surplus equal to areas D + E + C + F + H.
C) no longer be equating MR and MC.
D) reduce its producer surplus by areas C + F + H.
E) decrease its total output.
Answer: B
Diff: 2
Skill: Applied
User1: Graph
User2: Qualitative
26) Consider a monopolist that is able to distinguish between two distinct market segments, A and B, for
its product. Marginal cost is constant at $18 for each unit produced. The firm is currently selling its
output at a single price and allocating its output across segments such that marginal revenue in segment
A is $25 and marginal revenue in segment B is $15. Is this firm maximizing its profit?
A) Yes, because it has set a price such that MC is between the MRs of the two market segments.
B) No, because it is only possible to equate MR and MC when there is a single MR curve.
C) Yes, because since marginal cost is constant, the firm must set a single price.
D) No, this firm can increase its profits by price discriminating across the two market segments.
Answer: D
Diff: 2
Skill: Applied
User2: Quantitative
46
A is $25 and marginal revenue in segment B is $15. How can this firm maximize its profit?
A) increase the output in segment A and decrease the output in segment B
B) increase the output in segments A and B
C) decrease the output in segment A and increase the output in segment B
D) decrease the output in segments A and B
E) maintain the current output and its allocation across segments
Answer: A
Diff: 3
Skill: Applied
User2: Quantitative
A is $85 and marginal revenue in segment B is $105. Is this firm maximizing its profit?
A) Yes, because it has set a price such that MC is between the MRs of the two market segments.
B) No, because it is only possible to equate MR and MC when there is a single MR curve.
C) Yes, because since marginal cost is constant, the firm must set a single price.
D) No, this firm can increase its profits by price discriminating across the two market segments.
Answer: D
Diff: 1
Skill: Applied
User2: Quantitative
A is $85 and marginal revenue in segment B is $105. How can this firm maximize its profit?
A) increase the output in segment A and decrease the output in segment B
B) increase the output in segments A and B
C) decrease the output in segment A and increase the output in segment B
D) decrease the output in segments A and B
E) maintain the current output and its allocation across segments
Answer: C
Diff: 3
Skill: Applied
User2: Quantitative
47
30) With regard to price discrimination, we can generally say that a monopolist practicing perfect price
discrimination ________ a single-price monopolist in the same market.
A) produces a lower level of output compared to
B) generates more consumer surplus than
C) generates a more efficient outcome for society as a whole compared to
D) produces the same output level and charges the same price as
E) has the same effects on consumer welfare as
Answer: C
Diff: 2
Skill: Applied
User2: Qualitative
31) Many clothing retailers allow you to go to their website and print a coupon that you then present for a
discounted price on your next purchase in the store. In economics we refer to this as
A) a created entry barrier, a form of price discrimination.
B) hurdle pricing, a form of price discrimination.
C) sales maximization, a form of market segmentation.
D) a loss-leader, a form of advertising.
E) arbitrage, a form of price discrimination.
Answer: B
Diff: 2
Skill: Applied
User2: Qualitative
32) Suppose you go to a retailer's website and print a coupon that gives you a discount on your next
purchase at their store. But your friend, who also plans to purchase there, can't be bothered. You are
revealing to the store that
A) you have a lower income than your friend.
B) you understand price discrimination and your friend does not.
C) you have a lower elasticity of demand than your friend.
D) you have a higher elasticity of demand than your friend.
E) elasticity of demand changes according to the size of the discount offered.
Answer: D
Diff: 2
Skill: Applied
User2: Qualitative
48
33) Consider the following statement: "Price discrimination is harmful to society and should not be
tolerated under any circumstance." Why is this statement false?
A) Price discrimination always leads to lower prices and higher quantities.
B) Price discrimination can allow for some consumers to be made better off because they are able to buy a
product or service that was otherwise unaffordable.
C) Price discrimination leads to higher prices for all consumers and a reduction in consumer surplus.
D) Price discrimination reduces total quantity exchanged and therefore reduces the sum of producer and
consumer surplus.
E) Price discrimination violates the Canadian Charter of Rights and Freedoms.
Answer: B
Diff: 3
Skill: Applied
User2: Qualitative
49

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Economics - Canadian Edition, 15e (Ragan)

Chapter 10 Monopoly, Cartels, and Price Discrimination

10.1 A Single-Price Monopolist

2) The marginal revenue curve facing a single-price monopolist

3) The demand curve facing a single-price monopolist slopes downward because

5) A monopolistic firm faces a downward-sloping demand curve because

6) The average revenue curve for a single-price monopolist

24) Refer to Figure 10-2. The price elasticity of demand at Q2 is

25) Refer to Figure 10-2. The price elasticity of demand at Q1 is

26) Refer to Figure 10-3. The firm's marginal revenue at Q1 is

27) Refer to Figure 10-3. The price elasticity of demand at Q3 is

Consider the following AR and MR curves for a single-price monopolist.

38) A monopolist will be earning positive economic profits

39) At the profit-maximizing level of output for a single-price monopolist, price

40) Which of the following statements about single-price monopolists is correct?

43) If a single-price monopolist's price equals marginal cost, the firm

The diagram below shows total revenue for a single-price monopolist.

69) Suppose that a single-price monopolist knows the following information:

Price Quantity TR MR Fixed Cost TC ATC MC

The monopolist could maximize profits by

Price Quantity TR MR Fixed Cost TC ATC MC

71) Suppose that a single-price monopolist knows the following information:

Price Quantity TR MR Fixed Cost TC ATC MC

The monopolist could maximize its profits by

Price Quantity TR MR Fixed Cost TC ATC MC

73) Suppose that a single-price monopolist knows the following information:

Price Quantity TR MR Fixed Cost TC ATC MC

The monopolist could maximize profits in the short run by

Price Quantity TR MR Fixed Cost TC ATC MC

78) A likely cause of a natural monopoly occurring in some industry is

84) A firm is best described as a natural monopoly if

2) The cartelization of an industry with a homogeneous product usually means that

3) One of the reasons cartels are considered unstable is that

6) A cartel can only succeed in the long run

1) Refer to Figure 10-5. In order to maximize its profits, a perfect-price-discriminating monopolist

6) Price discrimination, if possible, allows a price-setting firm to increase its profits by

9) Which one of the following cases is NOT an example of price discrimination?

10) Which of the following is probably NOT an example of price discrimination?

13) If a monopolist is practicing perfect price discrimination, then

15) If a monopolist is practising perfect price discrimination, we know that

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